But coming only a day after the government was forced to raise the Commonwealth debt limit to a huge $500 billion, the extra source of revenue from Medibank will likely become a point of contention over the sell-off.

In the government-owned company's recent annual report, Medibank reported an annual profit of more than $230 million delivered to government coffers.

The profit margin was a massive 84% up on the previous financial year, and while it may make it more attractive to the private sector, a sell off could be another small hit on-going Commonwealth revenue as the government already faces a challenge of dealing with long-term structural budget problems.

Minister Cormann said in a statement on Thursday the sell-off would remove the conflict where the Commonwealth is both regulator and a participant in the health insurance market.

He said the scoping study would start by the end of November, to consider the best process for selling off the asset.

But he said the study would also aim to ensure regional and rural Australian clients would remain well-served by the private incarnation of the insurance firm.

It will also aim to get the best financial result immediately for the federal government and make sure employees are treated "in a fair manner".